A Phil Hall Op-Ed: One of the major stumbling blocks in today’s housing market is the abnormally low inventory of existing homes listed for sale. The absence of these properties is hardly mysterious – why would anyone voluntarily move out of a secure residence and go house hunting at a time when mortgage rates are near 7% and home prices are at historic highs? And considering that the average homeowner is in their mid-fifties, why would anyone either on the cusp of retirement or well into their golden years saddle themselves with 15- or 30-years’ worth of onerous mortgage debt?
So, how can we encourage homeowners to become active sellers? Holden Lewis, a writer with NerdWallet, has an idea. In his column “Not Enough Homes Are for Sale, So Let’s Pay Owners to Sell,” Lewis calls up people who believe the answer to this dilemma can be solved by Uncle Sam.
Of course, this would be something brand new for the federal government, which has been encouraging Americans to buy homes since FDR’s New Deal – there is no precedent for encouraging people to sell their homes. But in Lewis’ coverage, there are people who think this can be achieved if the “government could use tax incentives to prod people into selling homes even when mortgage rates are high.”
One strategy would involve doubling the capital gains exclusion. Lewis writes: “When you sell a house for more than you paid, the profit is a capital gain. You’re taxed on that capital gain if it’s over $250,000 for single tax filers or $500,000 for joint filers. A bill to double those amounts was introduced into the House in March by Reps. Jimmy Panetta, D-CA., and Mike Kelly, R-PA. Dubbed the More Homes on the Market Act, H.R. 1321 hasn’t had a hearing yet.”
Another strategy was based on research by Andrew Hanson, an associate professor of real estate at the University of Illinois Chicago, and Ike Brannon, president of the Washington think-tank Capital Policy Analytics, who considered issuing a $25,000 tax credit to homeowners who sell their primary home following at least 20 years of residency.
“The authors estimate that it would spur 296,000 to 640,000 owners to list their homes for sale,” Lewis stated.
Hanson and Brannon have another idea highlighted by Lewis: a “50% reduction in the capital gains tax rate for small-time landlords who sell single-family rental properties to first-time home buyers.” In this option, the supply of homes for sale is forecast for an expansion from by 67,000 properties to 146,000.
The Hanson and Brannon ideas are conceived as limited-time opportunities to address a current situation – they are not being pushed as a new normal.
Yes, these concepts are fascinating, by default if not design – currently, no one else is offering solutions. Alas, they ignore the environment where they are being offered.
Making life easier for homeowners was never a priority for the Biden Administration. Indeed, the handlers who load the president’s TelePrompter and create the notecards to keep his mind from wandering have yet to place homeownership as a central focus of his domestic policy. And if anything, the administration seems hostile to the homeownership pursuit – can you say “LLPA”?
As for the tax credits, who’s paying for them? The federal government is already running at record deficits and the administration is more interested in spending taxpayer money on the Ukrainian military and the green energy sector while trying to write off student loan debt in exchange for votes. The programs generated by Biden’s Department of Housing and Urban Development to improve homeownership are measly when compared to other programs throughout the federal bureaucracy.
And the idea of incentivizing the landlords of single-family rental properties to sell their properties to first-time home buyer is not realistic. The SFR market is lucrative and rental properties have taken on a new glow over the past few years. While the legendary Jack may have sold his cash-cow for a few beans, no landlord is expecting the modern equivalent of a beanstalk to the sky if they sell their cash-cow properties for a one-shot tax credit.
Of course, none of these ideas are aligned with the growing level of equity that homeowners now enjoy – and homeowners ages 62 and older are probably less interested in a realtor and more eager to speak with a reverse mortgage originator.
But there might a solution that Lewis and his cited experts did not mention: How about an environment where mortgage rates are closer to 5% or lower, where there is genuine downward movement on inflation and people are able have more money in their pockets, where Americans feel good about today’s prospects and their future, and where home prices are not breaking new record highs all the time? After all, you cannot have a normal housing market in an abnormal economy.
Phil Hall is editor of Weekly Real Estate News. He can be reached at [email protected].